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Press Release: Statement by IMF Deputy Managing Director Carstens at the Conclusion of his Visit to Costa Rica

July 14, 2004

International Monetary Fund (IMF) Deputy Managing Director Agustín Carstens made the following statement in San José on July 12, 2004:

"This is my first visit to Costa Rica as Deputy Managing Director of the Fund, and it is a great pleasure for me to be here today. This morning, I had the privilege of meeting with President Abel Pacheco. I also had productive meetings with Finance Minister Alberto Dent, Central Bank President Francisco de Paula Gutiérrez, and coordinator of the economic team Ronulfo Jiménez. The Fund greatly values this opportunity to continue developing the productive dialogue with the Costa Rican authorities.

"Costa Rica is a pillar of democratic tradition in Central America. Its sound institutions and impressive social development track record are models for other countries in the region. Costa Rica has continued to record strong economic growth during the recent global and regional downturn, which attests to its resilience and sound growth potential. Over the past decade, Costa Rica has succeeded in diversifying its export base and in attracting sizable foreign direct investment flows. Sound institutions, high levels of education, and an outward-looking growth strategy have been important assets in these efforts.

"Looking forward, the outlook for Costa Rica is favorable, although there are major challenges to overcome. In particular, I fully agree with the Costa Rican authorities that the upward trend in public debt needs to be reversed to ensure the sustainability of the public finances, and to continue strengthening the financial system. I was encouraged by President Pacheco's assurance that the tax reform before Congress and the adoption of the Free Trade Agreement between Central America and the United States are priorities for the government and have the broad support of Costa Rican society.

"To maximize the benefits of integration with the global and regional economy, and to address more effectively Costa Rica's challenges, we discussed the need for a comprehensive reform agenda. We agreed on the importance of complementing the current initiatives with a strengthening of tax administration, reforms in public spending, and better performance by public enterprises. We shared the view that monetary policy should focus on reducing inflation to low single digits and, to this end, it will be necessary to recapitalize the central bank. In the financial sector, it is essential to level the playing field between public and private banks, local and offshore banks, and colón and dollars intermediation. On these basis, it will be possible to revive intermediation in colones and gradually reduce the dollarization of the financial system.

"A comprehensive reform agenda would also be a key factor in harnessing Costa Rica's considerable growth potential and capitalizing on its impressive record of social progress. I fully share the authorities' view that to make such an agenda feasible, the reforms will need to be carefully prioritized and, more importantly, have the support of Costa Rican society.

"During our meetings, I also had the opportunity to hear the views of the authorities on how the Fund could further enhance its cooperation with Costa Rica. We agreed that there is scope for more technical assistance, especially in regard to the financial system, tax policy, and macroeconomic statistics. We wish to continue developing the close dialogue we have maintain thus far with Costa Rica and wish to have the opportunity to jointly meet the challenges facing the region."